Key Takeaways

  • In California, most services are not taxable, while tangible goods are subject to sales tax.
  • Exceptions exist for services directly tied to creating or repairing taxable products, like manufacturing or fabrication labor.
  • Some services are taxed because they involve providing tangible property (e.g., custom furniture building or printing).
  • Professional services (lawyers, doctors, accountants, consultants) are exempt from sales tax.
  • Businesses with nexus in California must register, collect, and remit sales tax on taxable sales.
  • Filing frequency depends on tax liability and can be monthly, quarterly, or yearly.
  • Failure to file or pay on time leads to penalties, interest, and possible collection fees.

Are services taxable in California? No, they're not. Entities (including consumers) in California are taxed on their purchases or consumption of various physical products, such as cleaning supplies, clothing, school supplies, and so on. However, they don't pay taxes for using the services of a lawyer, a dentist, or a plumber.

If you do freelance writing or plumbing in California, you're lucky because services aren't taxable in California generally. Plus you won't have to care about paying sales taxes. For the record, if the kind of service you render has to do with manufacturing products, you may not escape paying sales taxes on the products you manufacture.

Nexus and Taxes

Businesses with physical venues in California have nexus. Consequently, they're required by law to register in order to collect sales taxes, file sales tax returns, and pay sales taxes to California State. If a retailer sells on Amazon and leverages Amazon's Fulfillment by Amazon (FBA) program, they'll be said to have a physical presence in California if some of their goods are stored in an Amazon FBA warehouse in California.

Taxable vs. Nontaxable Services in California

While California generally exempts services from sales tax, there are important exceptions. Services that are part of producing, repairing, or installing tangible goods are taxable. For instance, labor to repair appliances or fabricate products for sale is taxable because it is tied to the finished good. On the other hand, professional services such as legal, medical, or consulting work remain tax-exempt because they do not result in the transfer of tangible property.

California also taxes certain specific service categories, such as:

  • Fabrication services – when raw materials are turned into a new product.
  • Printing services – including custom printing and related finishing work.
  • Installation labor – if separately stated, may be exempt, but bundled installation and sales are taxable.

Understanding where your business activities fall is crucial since misclassifying services can lead to penalties or audits.

Filing Sales Taxes

When it's time to file your sales tax in California, the following are three things you must do:

  • Compute how much you owe as sales tax.
  • File a sales tax return.
  • Pay the tax.

You can file online or through traditional mail. You can take advantage of the free online filing alternative of BOE, or you can opt for a third-party means of filing that's authorized to get returns and payment information, after passing the BOE's test of acceptance.

If you choose to file online, you can pay via the Electronic Funds Transfer program (EFT), ACH Credit, ACH Debit, your own bank, or pay by some other means. The Electronic Funds Transfer program is compulsory for entities that have a California Seller's Permit and make an average of $10,000 and above monthly payments or are holders of a Special Taxes and Fees account who average monthly tax payments of $20,000 and above. Others can choose this option voluntarily. There's also a prepayment sales tax rate for products, such as diesel, aviation fuel, and motor vehicle fuel.

Service Providers and Mixed Transactions

Businesses offering both products and services need to carefully separate taxable and non-taxable charges on invoices. For example, a graphic designer may sell both creative design (non-taxable service) and printed materials (taxable product). If these charges are not itemized, California may consider the entire transaction taxable.

To stay compliant:

  • Itemize invoices to distinguish services from goods.
  • Maintain clear records of sales and services provided.
  • Review state tax updates regularly, since California occasionally revises taxability rules for specific industries.

Monthly Due Dates

Monthly due dates are due every last day of the month next to the reporting period month.

  • January/February due date: Feb. 28 (Feb. 29 in a leap year)
  • February/March due date: March 31
  • March/April due date: April 30
  • April/May due date: May 31
  • May/June due date: June 30
  • June/July due date: July 31
  • July/August due date: Aug. 31
  • August/September due date: Sept. 30
  • September/October due date: Oct. 31
  • October/November due date: Nov. 30
  • November/December due date: Dec. 31
  • December/January due date: Jan. 31

Quarterly Due Dates

Quarterly due dates are due April 30, July 31, Oct. 31, and Jan. 31. In other words, the due date for a quarter is the last day of the first month of the next quarter. The 24th of the earlier two months is when prepayment returns are due.

  • January to March due date (Q1): April 30
  • April to June due date (Q2): July 31
  • July to September due date (Q3): Oct. 31
  • October to December due date (Q4): Jan. 31

Yearly Due Dates

Sales Tax Accounts yearly due date is Jan. 31 (of the next year) for the previous year. Qualified Purchasers and Consumer Use Tax Accounts yearly due date is April 15. The 24th of the first two months of each quarter is the due date for filing prepayment accounts.

The period due from January to December is Jan 31. Interests and penalties will start accruing after the day a sales tax return is due. Examples of such interests and penalties include the following:

  • 10 percent of the total tax due if an entity fails to file their tax return on its due date and 10 percent for late payment. This is not allowed to be more than a total of 10 percent interest depending on the interest rate indicated at the bottom of the return for all months or partial months within which the tax stays unsettled.
  • If taxes stay unsettled above 90 days after their due date, a Collection Cost Recovery Fee (CRF) will have to be paid, except the defaulting entity enrolls in a payment plan and adheres to its rules.

Penalties and Compliance Considerations for Service Businesses

Even though most services are not taxable, service businesses still face compliance responsibilities. If they sell taxable products alongside services, they must collect and remit sales tax. Failing to register or file correctly can result in:

  • Late payment penalties of up to 10% of tax due.
  • Interest charges on unpaid balances.
  • Collection Cost Recovery Fees for delinquent accounts.

Additionally, businesses that expand into new markets—such as offering digital downloads or bundled service-and-product packages—should reevaluate their tax obligations. Digital goods, for example, may be treated differently depending on state regulations.

Frequently Asked Questions

  1. Are professional services taxable in California?
    No. Professional services such as legal, medical, and consulting work are exempt from California sales tax.
  2. What kinds of services are taxable in California?
    Services tied to tangible goods—like fabrication, repair, or printing—are taxable. Pure services like accounting or therapy are not.
  3. If I provide both products and services, do I charge sales tax?
    Yes, but only on the taxable product portion. Itemize invoices to clearly separate taxable goods from non-taxable services.
  4. Are digital services or downloads taxable in California?
    California generally does not tax digital services, but businesses should monitor updates since tax treatment of digital goods is evolving.
  5. What happens if I fail to file sales tax on time?
    Penalties of up to 10% and interest charges apply. Delinquent businesses may also face a Collection Cost Recovery Fee.

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